It took 20 years but Volkswagen is finally going to try making cars in the United States again. Today the German automaker announced plans to invest $1 billion on a production facility in Chattanooga, Tennessee that will turn out vehicles for the North American market. The move is seen as the only way the company can, given the strong euro, hope to increase its meager U.S. market share.
The initial coverage of the announcement I saw did not mention the circumstances under which VW abandoned its previous U.S. manufacturing initiative. In April 1978 the company opened an assembly plant in Pennsylvania to produce its Rabbit model. A few months later, the workers, represented by a newly formed local of the United Auto Workers, shocked the company—as well as their parent union—by staging a wildcat strike to protest the fact that they were being paid less than their counterparts at the plants owned by the Big Three. Stopping production of the Rabbit, the workers chanted “No Money, No Bunny.”
The workers eventually returned to work, but labor relations at the plant remained tense as the UAW, compelled by members of the local, pressured the company to narrow the wage gap. VW was also confronted with a lawsuit charging that it discriminated against black employees. Finally, in 1988, VW gave up and closed the plant.
It appears that VW is being more cautious this time. It has followed in the footsteps of other foreign automakers that have located their U.S. plants in Southern right-to-work states or other areas with low union density. Thus is Toyota in states such as Kentucky, Alabama and Mississippi; Nissan in Tennessee and Mississippi; BMW in South Carolina; Mercedes in Alabama; Kia in Georgia; and Hyundai in Alabama. The scarcity of unions may be the real commonality that Tennessee Gov. Phil Bredesen had in mind when he said today that VW chose his state because of “shared values.”
The Southern states have rewarded foreign car companies not only with non-union labor but also with lavish economic development subsidies—in many cases more than $100 million per plant. Volkswagen’s package from Tennessee is still being negotiated. Gov. Bredesen today said only that the deal is “complicated,” which should probably be taken as code for “extravagant.”
Government giveaways and docile labor: Volkswagen may not have had it so good since the era when the People’s Car was born.